Thursday, September 23, 2010

Vince is about as Marxist as Adam Smith

‘’Vince Cable “not a Marxist”’said a BBC headline yesterday on the eve of his speech to the Liberal Democrat conference in Liverpool. Indeed, he is not. Vince Cable is an economic conservative, who has long advocated free market capitalism and cutting the state. . Cable was a prominent contributor to the LibDem “Orange Book” which argued for market reforms in the public sector, including the NHS. He is an enthusiastic advocate of the Chancellor, George Osborne’s deficit reduction programme

So why has the ballroom dancing Business Secretary had to whirl around the Liberal Democrat conference insisting that he is not an anti-capitalist demonstrator who wants to fire bomb RBS? Who could ever have believed that the former chief economist for Shell was a socialist, let alone a revolutionary? Clearly, a lot of business spokespeople do. Even before he’d delivered his speech Cable had been accused by the former trade minister, Lord (Digby)Jones, of being a “whinging Liberal” and “another brick in the wall” of Britain's anti-business culture. Richard Lambert of the CBI ridiculed Cable for his “anti capitalist” views and asked what he proposed to put in its place. Vince played his part by addressing the Liberal Democrats jokingly as "comrades".

But "Red" Vince Cable’s speech was actually a plea for MORE capitalism, not less. He called for a return to fair competition in regulated markets, not nationalisation of the commanding heights of the economy. When Cable said that “capitalism takes no prisoners and kills competition” he was echoing the views of the Scottish father of free market capitalism, Adam Smith, who attacked the tendency for capitalists to suspend the market in favour of monopoly. In “The Wealth of Nations” Smith said: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” Quite. The paradox of capitalism is that it needs regulation to make the free market work, for competition to work.

The banking sector in Britain doesn’t operate in any kind of functioning market because its activities are underwritten by the state, by the taxpayer. By rights, all the profits currently being made by RBS should be going to the Inland Revenue. But it seems that the political moment has passed for controlling the greed and irresponsibility of the banks, which is why there was such a curious reaction to Vince Cable’s anti-communist manifesto. The story now is not banks going bust, but the public finances going bust. Even Lord Turner, who last year said that a lot of what the City of London does is “socially worthless” has subtly altered his rhetoric. He is now insisting that the “demonisation” of bonus driven market traders has gone on too long. Well there are a lot of people in this country, not just Liberal Democrats, who believe that the demonisation of the bankers has hardly started, never got off the ground, was smothered at birth.

My only concern is that comrade Vince didn’t go nearly far enough, in a speech that was largely designed to soothe the consciences of Liberal Democrat activists trying to come to terms with being in bed with the Tories. What's wrong with retribution? Cable should have called for specific measures to tame the financial beast, like an extension of the banking bonus tax; a claw back of the windfall profits that banks make from near zero interest rates; action against tax havens and tax evasion; abolition of the CGT rules that allow private equity pirates to make a killing buying companies with debt. Right now, honest capitalists and social democrats have common cause in condemning the parasitic kleptocracy that has seized the commanding heights of the British economy. Without the support of hundreds of billions in public funds bankers would be on the streets.

Cable’s promise “to shine a harsh light into the murky world of corporate behaviour” would have aroused little comment even six months ago, but now, suddenly, it is seen as dangerous radicalism. It is not. Any business minister who did not want to shine a light into the way our financial system works after the gravest financial crisis in eighty years, would be guilty of a dereliction of duty. Any business minister who did not want to challenge the “spivs and gamblers” in the City of London, would not be earning his salary. The hostile take-over of Cadbury’s by Kraft last year, organised by financiers in the City, destroyed jobs and a great UK brand and raised serious questions about the short-term, fast-buck mentality in the financial sector

All that Cable did was repeat legitimate and widespread criticisms of the bonus-driven speculative capitalism that almost destroyed the financial system and has destroyed the savings and pensions of millions of ordinary people. Far from the crash of 2008/9 leading to the end of capitalism as we know it, as many commentators believed, the system has stabilised in remarkably short time. It has succeeded in turning a crisis of banking insolvency into a crisis of public debt. The banks grabbed the £1 trillion bailout with both hands, sorted themselves out, and have gone back to business as usual - which is paying themselves huge bonuses.

Bankers are once again “masters of the universe” in Tom Wolfe’s famous phrase. When Barclay’s bank installed as its new chief Bob Diamond - the speculator’s speculator - the City thumbed its collective nose at politicians and public alike. They no longer feel they have to apologise to anyone anymore as the prepare, this winter, to hand themselves what are expected to be the biggest bonuses in banking history. But the huge increase in banking profits in 2010 is largely a consequence of reduced competition between banks. The financial services sector is now dominated by a handful of behemoths, like Lloyds Banking Group, which has 30% of the UK mortgage market and can charge what it likes for mortgages overdrafts and loans. Only this week, the Bank of England, in its Quarterly Bulletin, made clear its concern that banks were making “excessive” profits from these “mark ups”.

Banks are back to behaving badly because they no longer feel under political pressure. Indeed, they have the security of knowing that, if they screw up again, the government, ie us, will come to their rescue. The next financial crisis starts right here.

2 comments:

Rather than getting rid of 'boom and bust', Brown's light touch regulation of the financial sector (and subsequent manipulation of its reformation once it had crashed about his ears), has guaranteed it in perpetuity.Boom for the bankers, bust for everyone else.

About Me

Iain Macwhirter is the award-winning political columnist for the Herald and Sunday Herald. He has been a political broadcaster for over 20 years, in Westminster and Holyrood, and is former Rector of Edinburgh University.